26 U.S. Code § 1235 - Sale or exchange of patents

A transfer (other than by gift, inheritance, or devise) of property consisting of all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights, by any holder shall be considered the sale or exchange of a capital asset held for more than 1 year, regardless of whether or not payments in consideration of such transfer are—

(1)payable periodically over a period generally coterminous with the transferee’s use of the patent, or

(2)contingent on the productivity, use, or disposition of the property transferred.

(b) “Holder” defined

For purposes of this section, the term “holder” means—

(1)any individual whose efforts created such property, or

(2)any other individual who has acquired his interest in such property in exchange for consideration in money or money’s worth paid to such creator prior to actual reduction to practice of the invention covered by the patent, if such individual is neither—

(A)the employer of such creator, nor

(B)related to such creator (within the meaning of subsection (d)).

(c) Effective date

This section shall be applicable with regard to any amounts received, or payments made, pursuant to a transfer described in subsection (a) in any taxable year to which this subtitle applies, regardless of the taxable year in which such transfer occurred.

(d) Related persons

Subsection (a) shall not apply to any transfer, directly or indirectly, between persons specified within any one of the paragraphs of section
267(b) or persons described in section
707(b); except that, in applying section
267(b) and (c) andsection
707(b) for purposes of this section—

(1)the phrase “25 percent or more” shall be substituted for the phrase “more than 50 percent” each place it appears in section
267(b) or
707(b), and

(2)paragraph (4) of section
267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants.

Pub. L. 94–455, § 1402(b)(1)(V), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

1958—Subsec. (d). Pub. L. 85–866substituted provisions set out as subsec. (d) for provisions reading “Subsection (a) shall not apply to any sale or exchange between an individual and any other related person (as defined in section
267(b)), except brothers and sisters, whether by the whole or half blood.”

Effective Date of 1998 Amendment

Amendment by section 5001 ofPub. L. 105–206effective Jan. 1, 1998, see section 5001(b)(2) ofPub. L. 105–206, set out as a note under section
1 of this title.

Amendment by section 6000(d)(4) ofPub. L. 105–206effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 ofPub. L. 105–206, set out as a note under section
1 of this title.

Effective Date of 1984 Amendment

Amendment by section 174(b)(5)(C) ofPub. L. 98–369applicable to transactions after Dec. 31, 1983, in taxable years ending after that date, see section 174(c)(2)(A) ofPub. L. 98–369, set out as a note under section
267 of this title.

Amendment by section 1001(b)(19) ofPub. L. 98–369applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) ofPub. L. 98–369, set out as a note under section
166 of this title.

Effective Date of 1976 Amendment

Pub. L. 94–455, title XIV, § 1402(b)(1),Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.

Pub. L. 94–455, title XIV, § 1402(b)(2),Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.

Effective Date of 1958 Amendment

Pub. L. 85–866, title I, § 54(b),Sept. 2, 1958, 72 Stat. 1644, provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to taxable years ending after the date of the enactment of this Act [Sept. 2, 1958], but only with respect to transfers after such date.”

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